Bid-Ask Spread

Many investors are not aware that in addition to the commissions they pay to purchase a stock or exchange traded fund they also have an addition expense called the bid-ask spread.

The definition – The amount by which the ask price exceeds the bid. This is the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it.

The size of the spread from one security to another will differ mainly because of the difference in liquidity of each security. For example, currency is considered the most liquid asset in the world and the bid-ask spread in the currency market is one of the smallest (one-hundredth of a percent). Less liquid assets such as a small-cap stock may have spreads that are equivalent to a percent or two of the asset’s value.

In addition as mentioned in my previous blog post, these spreads especially ETF’s will change throughout the day with the lower spreads being in the morning and as the after approaches the spread tend to widen.

Late afternoon purchases are even higher especially as you near the closing bell.

The size of the spread and the price of the stock is determined by supply and demand.

The more individual investors want to buy, the more bids there will be; more sellers results in more offers or asks.

If you are a day trader, the spread will have a huge impact as to whether you make a profit or not; the smaller the spread the better.

In any market, there are buyers and sellers that want to buy and sell respectively. Buyers puts out a bid price that they are willing to buy it for and sellers offer it for sell at the ask price. Whenever the bid and ask price match, there is a transaction.

So you might be wondering where the money goes in the spread, that would be the market makers. Market makers are firms that provide market liquidity and help to smooth out buyer and seller imbalances by standing ready to buy assets at the bid price and to sell them at the ask price.

Daniel Iuculano, AAMS CMFC

Financial & Wealth Planner

How to Time Your ETF Trades

Trading ETF’s in the afternoon can cost you a lot more rather than trading in the morning.

ETF’s are securities similar to mutual funds and can consist of stocks, bonds, commodities and currencies.

Because commodities and foreign stocks trade at different hours than the U.S. market the timing of the trades could determine how much the markup will be.

These markups (bid-ask spread) can average around 10 cents a share most of the trading day, however as the afternoon marches on so does the spread rise to 20 cents or more. If you wait until the last few minutes of trading it can soar to even more, 55 cent would not be uncommon.

So watch and do your ETF trades after the first hour of trading in the morning or to lessen the impact of the higher spreads place a limit order.

The limit order specifies the price range you are willing to trade for the exchange traded fund.

Daniel Iuculano, AAMS CMFC

Financial & Wealth Planner

Social Security Taxation

Depending on your income in any given year, your income will determine whether you will have your benefits taxable or not.

If your combined income is less than $25,000 (single) or $32,000 (joint return) your social security benefits will not be taxable.

If your income is above the threshold but less than $ 34,000 single or $44,000 for married filing jointly your benefits will taxable at 50 percent.

Any amount above the amounts mentioned above is taxable at 85 % of benefits.

Individuals in the higher brackets will find tax planning will have no effect on lowering their taxes on their social security benefits. If your income is low of course there is no need in tax planning either.

If you are caught in the middle then you may take advantage of substantial tax savings from tax planning.

Tax Strategies to consider are:

1.  Change investments – move mutual funds into ETF’s to avoid taxable distributions.
2.  Revenue capital gains potential – harvesting capital losses can help hold down taxable capital gains.
3.  Fund your retirement accounts – earned income up to $14,000 can be fully sheltered.
4.  Roth IRA conversion – you won’t be required  to make minimum distributions at age 70 ½.

Daniel Iuculano, AAMS CMFC

Financial & Wealth Planner

Retirement Planning and use of Annuities

New products and strategies are coming to the marketplace to guarantee retirement income. The purpose is to protect future income generation as you move from asset accumulation to retirement income.

You might consider a stand alone living benefit referred to as SALB, this allows you to purchase a living benefit guarantee on assets held outside of an annuity in a portfolio of mutual funds or ETF’s.

This feature adds a guarantee on top of assets that you already own thereby eliminating commissions or death benefits which in turn reduces contract fees and avoiding the typical expenses of annuity sub accounts.

The assets remain fully under your control unlike many annuities which end up as orphaned positions.

The SALBs can provide a tax advantage investment in a non qualified account, as income and long term capital gains are taxed at a preferential tax rate. They also offer protection against inflation through floating income guarantee rates that are tied to US Treasuries.

Daniel Iuculano, AAMS CMFC

Financial & Wealth Planner

Power Surge Stock Trading Strategy

This power surge trading strategy makes use of combining both fundamental and technical analysis into one approach.

The following fundamental elements are examined to qualify for a potential power surge:

1. A minimum stock price of $20
2. Relative strength of 85 or higher
3. Strong earnings estimates of 20 % or higher
4. Earning increases in the last two quarters of 25 % or higher
5. Sales increase of at least 20 % over the past 12 months
6. 20 day average trading volume of 100,000 shares or more
7. No or very little debt less than 30 percent
8. Low institutional ownership

The top three stocks in the same industry possess relative strength of 90 or higher

This approach is to seek the strongest stocks available to consider for stock purchase. Ideally you are seeking a position that has the potential to continue its upward movement for months or even years to come.

The process involves identifying stocks that meet a strict set of fundamental and technical rules.

The following technical criteria are also examined:

Price must be at a 12 month high and the previous eight weeks have seen a price surge of at least 50 percent.

This strategy isn’t very common but can be effective, you must be patient and stick to the rules set above. You won’t get many trades over the course of a year, but when you do find a stock that qualifies your potential gains will be enormous.

Daniel Iuculano, AAMS CMFC

Financial & Wealth Planner

Strategies for Fixed Income Securities

Here are several strategies for fixed income securities you can consider:

Bond Categories

Sovereign debt denominated in foreign currencies – Since emerging markets are relatively healthy compared to a year ago, many feel expect these investments to fare better than a year ago.

Mortgage backed securities – Some of the yields are excellent ranging upward to 16 percent or more. Be care though as this type of security is tied to interest rates and when the rates go up, the value of these investments will begin to fall.

Senior secured private debt – for public traded companies they can issue new stock and go to the marketplace. However middle market private companies have elected to look towards third parties to get money for their operations. The loans are fully collateralized which is a big part of their appeal.

Opportunistic bonds – bond funds that can invest wherever they like as they see opportunities present themselves.

Stock (equity) Categories

High dividend paying securities which include real estate investment trusts (REIT’s), utilities.

Master limited partnerships are partnerships that typically invest in hard assets. Many MLP’s focus on the energy industry.

Trusts – charitable remainder uni-trust allows you to donate stock or highly appreciated real estate to a charity in return for percentage annually of the value of the donation.

Insurance annuities can provide peace of mind in the form of a reliable stream of income. Be aware the there will be a downside risk because of the high cost to purchase an insurance annuity. A popular type is an immediate annuity which requires a upfront sum of money to the insurer, though you will receive a guarantee stream of income for the rest of you life.

Daniel Iuculano, AAMS CMFC

Financial & Wealth Planner

How is debt consolidation important for proper financial planning?

Debt consolidation helps in lowering the interest rate on your debts and in addition it also helps in rolling over all of the debts that you have into a single debt. Thus, it becomes easier for you to pay off the unsecured debts that you have. Now, you must be wondering as to how debt consolidation is important for your financial plan. Debt consolidation; if done in the right way; helps you to save money and improve your credit in the process of paying down the debts fast.

Debt consolidation and financial planning

Financial planning is about setting goals and achieving financial success; improving and maintaining your credit is part of financial planning process which can save money so that you can have a stress free and secure life. If you have too many debts, even though you are not in much of a financial constraint, it would be better to consolidate your debts.

Another benefit of debt consolidation is that it helps you to pay off debts faster than usual, especially if you make more than the minimum payments. If you can manage to make more than minimum payments or more than one payment in a month – the snowflake method after consolidating the debts, you will be able to become debt free faster.

One of goals in personal finance planning is maintaining a debt free life. Thus, you can see that debt consolidation is an important part of your financial well being. While budgeting and practicing frugal living, you should also be able to consider consolidating the unsecured debts that you have.

There are various options through which you may be able to consolidate your debts.

• Balance transfer method.
• Taking out a debt consolidation loan
• Seeking help from a credit counseling service.

If you would really want to save money through debt consolidation, it is important for you not only to make more than the minimum payments but also avoid closing down all of your credit accounts at the same time. This is important because, if you close down accounts it results in lowering your total available credit. This in turn will increase your debt to available credit ratio which will impact your credit score in a negative way.

If you need to close accounts, close them over a period of time.

Author Bio: Jack Hudson is a financial writer and he enjoys writing articles on the global financial situation, make money online, stock market, debt consolidation, and mortgages along with other finance related topics. He is also associated with some online financial communities like DebtCC. You can follow us on https://www.facebook.com/debtconsolidationcare

Final thoughts on debt consolidation

If you find yourself in a financial situation that requires assistance from a debt consolidation firm, be very cautious as there are many unreliable as well as unethical companies that will end up causing more financial harm that good.

Look for a credit counseling service that is a non profit organization that will only charge you a small fee for their services.

Daniel Iuculano, AAMS CMFC

Financial & Wealth Planner

The Future of Estate Taxes

In January 2013 the estate tax will change from its current 35 % rate at 5 million down to 55 % on estates over 1 million.

There are numerous experts that feel that congress will either permanently extend the current rate or least another 10 years.

It’s the belief that congress doesn’t want a short term extension which would mean they would have to deal with the issue again so soon.

Of course this is all speculation as to what Congress will do after the election. The Republicans also are talking about totally doing away with the estate tax and the alternative minimum tax.

In addition there is talk that Obama wants to do away with special tax treatment of dividends and capital gains; however most experts believe that it’s highly unlikely ever to pass.

Expiration of the Bush tax cuts would raise taxes on virtually every taxpayer including bringing back the marriage penalty, eliminate the child tax credit and raise the alternative minimum tax.

Only time will time as to what the outcome will be, but investors and all taxpayers should be aware of the possibility of higher taxes in the near future.

Daniel Iuculano, AAMS CMFC

Financial & Wealth Planner

Transitioning to Retirement

Steps to take when transitioning to retirement:

Remember this is an ongoing process through out your retirement years.

1.  Maintain an emergency fund – six months or more of expenses depending on your financial situation.
2.  Create a retirement plan which includes your assets, liabilities, income and expenses.
3.  Match your investments to your goals and specific financial needs.
4.  Consider selling securities to meet income needs in addition to your interest and dividends.
5.  To assist your cash flow considers fixed annuities that payout a guaranteed income.
6.  Review a strategy to allow a smart draw-down otherwise you run the risk of depleting your assets too soon.
7.  Re-balance your portfolio at least annually and adopt a stop loss strategy.
8.  Stay flexible, update and review your retirement plan every year.

Daniel Iuculano, AAMS CMFC

Financial & Wealth Planner